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14 Cards in this Set

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  • Back


stated interst payment made on bond

face value

principal amt of bond that is repaid at end of term also called par value

coupon rate

annual coupon divided by face value of bond

yield to maturity

rate required in the market of a bond

bond valuation

pv of face value + pv of annuity

C{1-(1/1+r)^t} +F/ 1+r^t

face value paid at maturity =f

coupon of C paid per period

a yielf of r per period

effective yield on bond

e.g 8% =(1.08)^2 -1 =16.64%

interest rate risk influenced by

time to maturity

coupon rate

time to maturity

longer =more risk

coupon rate

lower coupon rate =greater int rate risk

YTM when given coupon +maturity rate

educated guess

real rate

int rate adjusted for inflation

% change in purchasing power

Fischer effect

r/ship between non-returns , real returns +inflation

1+R= (1+r) +(1+h)

R= nominal rate r = real rate h= inflation

inflation premium

portion of nominal int rate that represents compensation for expected future inflation

interest rate risk premium

compensation investors demand for bearing interest rate risk